With July 1 fast approaching, Lara Hansen looks at what is changing in aged care and the main implications this creates for advice.
Just when many advisers were starting to understand aged care, the rules are about to change. But isn’t that always the way with legislation.
Clients who move into aged care from July 1, 2014 will be subject to a new fee structure, which has a greater focus on “user pays” and at-home care options. For clients moving into residential care, this is likely to result in higher contributions towards the cost of their care and accommodation.
Some strategies we have been using will still work, but others will need to be repositioned or discontinued.
With the reality that around 68 per cent of women and 48 per cent of men over the age of 65 will need to access care services, aged care is an area that no adviser can afford to ignore. Your older clients will need advice and support to make the move. Your younger clients will need advice and support to help their parents make the move.
This article focuses on some of the important implications that may emerge from the changes.
What is the cost from July 1?
The cost of care will depend on where care is provided as well as the resident’s financial capacity. A major change is that facilities will no longer be classified as “low care” or “high care” – so all subsidised facilities will operate under a single fee structure.
The new means testing
Clients moving into residential care will have a “means-tested amount” calculated. This is relevant to determine whether the client qualifies for accommodation subsidies from the government as well as to calculate additional means-tested care fees.
The means-tested amount includes an amount based on assessable assets and an amount based on assessable income. If the total calculated is less than the maximum accommodation subsidy (MAS) the client only needs to contribute towards accommodation and basic daily care fees (no means-tested fee). But if the total is higher than the MAS, higher care fees are payable.
Under the old rules, clients could limit daily care fees by implementing strategies that reduced assessable income. Under the new rules these strategies can still provide benefits but may be less effective due to the inclusion of assessable assets.
Some important points to note:
■ When determining accommodation payments at entry, the full value of the home will count (unless a protected person still lives there), but only a capped value up to $153,907 (2012-13 rates) will count for determining daily care fees.
■ Any lump sums paid for entry (refundable accommodation deposits – RADs) will count as an assessable asset for daily care fees but are exempt when determining age pension eligibility. This limits the ability to negotiate higher accommodation payments to reduce care fees.
■ Assessable income continues to use Centrelink income test rules. This will include deeming on account-based pensions (if legislation is passed) for new pensions commenced after December 31, 2014 or for clients who did not receive a Centrelink/DVA means-tested payment at that date (and continuously remained eligible).
■ RADs will continue to be government-guaranteed and will be fully refundable – no monthly retention amount, although unpaid fees can be deducted.
Managing cash flow will be critical for clients. Selecting a facility with a higher RAD may reduce fees, but the client needs to be able to afford to pay the lump sum and still generate sufficient cash flow to pay ongoing fees.
Need for financial advice
There is no doubt that the new rules are quite complex. They allow higher transparency with bond negotiations but potentially increase the user-pays component of care.
Advice will be key. Clients may have greater need to seek advice as they will have 28 days after moving into care to decide whether to pay the accommodation payment as a daily fee or a lump sum.
Decisions will also need to be made on:
■ whether to sell the house or not – selling the house may improve cash flow and simplify the management of the portfolio but it may also increase the fees payable;
■ how much benefit is provided by products that reduce assessable income; and
■ how to generate and manage cash flow.
Comparing the accommodation payments between facilities will be easier as facilities will be required to publish their rates as both a lump sum and daily fee. They will also need to adhere to the advertised rates, leaving less (if any) opportunity to negotiate higher bonds in exchange for discounts on daily care fees. But then it is not just about the fee – accessing the right level of care in the right location may be more important.
The impending changes mean now is the time to start thinking about the impacts and building your advice skills, in financial aspects as well as the provision of valuable emotional support and an objective and impartial voice to help create solutions and minimise family disputes.
This is a difficult time for clients and their families. They are looking for help to save time and provide peace of mind that they are making the right choice. And that is advice worth paying for.
